Asset protection strategies for dentists, doctors and veterinarians

Implementing effective asset protection strategies is crucial to safeguard their hard-earned wealth and ensure long-term financial security. There are several ways to consider protecting both business and personal assets–your Huntington Private Bank team is here to help ensure you’re utilizing the best strategies based on your specific situation.

Insurance can be your friend

Insurance may seem like an expensive precaution–until you need it. Liability insurance is the cornerstone of asset protection for doctors. Robust malpractice insurance is a must. This insurance should not only meet legal requirements but also offer comprehensive coverage tailored to the specific practice.

Malpractice insurance should be complemented with other types of coverage, such as, disability insurance and umbrella policies. These policies can cover gaps in other insurance plans and protect against claims that exceed coverage limits. There are many areas insurance can help maintain the practice and avoid major losses:

• Life and incapacity insurance may be reliable mechanisms when implementing and funding a buy-sell agreement.
• Find an umbrella policy, which can be relatively inexpensive when compared to malpractice insurance, and it typically covers other possible insurance claims.
• Purchase insurance coverage to mitigate employee risk.
• Regularly review property and equipment coverage because medical and surgical supply costs have increased by 6.5% on average since 2017^‡.
• Casualty insurance coverage limits should provide for loss of income, inflation, and supply chain disruptions.

Protecting your nest egg

In addition to insurance, doctors should consider other business structures and ownership strategies that could help mitigate and reduce risk to their personal assets today and in the future. Strategies to consider:

• Domestic Asset Protection Trusts (DAPTs) - an irrevocable trust designed to protect assets from creditors while allowing the trust's creator to benefit from the assets. DAPTs allow the trust creator (settlor) to be a beneficiary, meaning they can still receive distributions from the trust. This feature provides financial flexibility while maintaining asset protection. Assets in a DAPT are generally shielded from creditors, including those arising from malpractice lawsuits. This protection is particularly valuable for doctors who face high liability risks.
• Limited Liability Companies (LLCs) - An LLC separates personal and business assets, ensuring that personal property is not at risk if the business faces legal action or debt. LLCs offer flexibility in management and taxation. Owners can choose to be taxed as a sole proprietorship, partnership, S corporation, or C corporation, depending on what is most beneficial for their financial situation. It’s important to note that while an LLC can protect personal assets from general business liabilities, it does not shield owners from personal liability for professional malpractice claims.
• Revocable Trusts - These trusts allow the settlor to retain control over the assets during their lifetime and specify how the assets should be managed and distributed after death. While they don’t offer creditor protection during the settlor’s lifetime, they can help avoid the probate process, which is a public and expensive endeavor. Keeping all assets including business interests out of probate will allow for privacy and faster distribution to your family.

If you own your practice have a plan

Buy-sell agreements are critical for physicians who own or co-own their practices. These agreements outline the terms under which a partner's share of the business can be sold in the event of death, disability, retirement, or voluntary departure. They ensure a smooth transition of ownership, prevent disputes, and protect the financial interests of the remaining partners. A well-structured buy-sell agreement includes:

• Trigger events: Conditions under which the agreement is activated (e.g., death, disability, retirement)
• Valuation method: How the value of the departing partner's share is determined
• Buyout terms: Payment terms to avoid financial strain on the business
• Ownership restrictions: Ensuring compliance with laws that restrict ownership to licensed professionals

A well-structured buy-sell agreement is vital for the long-term success and stability of doctors’ practices. As you prepare your buy-sell agreement, you’ll want to consider how you’ll fund the triggering events that can cause a partner’s shares to be purchased.

Many consider the use of life insurance to provide funding in the event of death to help reduce the cash flow strain a purchase might have on the other partners or the business itself. Once you have your buy-sell agreement structured, be sure to regularly update it to ensure the structure and terms still make sense for all parties involved.

Employee “event” mitigation

For even the most efficient practices, little could get done without employees–they may be your most crucial asset. But even the best staff members can make mistakes or worse, be involved in nefarious activities. Regardless of the intent, some employee “events” could result in costs or losses that cripple or even shutter a practice.

Mishaps that damage or destroy equipment typically would be covered by insurance–if it’s carried. Depending on the size and scope of a practice the following steps could help avoid catastrophe:

• Implement robust employee training and operational protocols
• Create a process or mechanism for anonymous reporting of suspicious activities
• Conduct internal audits and perform background checks to specifically detect and prevent fraudulent behavior
• Know your vendors by conducting background checks and keep the vendor approval process and payment authorization separate

Cyber threats are here to stay

As digital connections to patients, employees, suppliers, and partners expand, so do the threats that come with it. This makes practices vulnerable to cyberattacks that may end up as data breaches, system intrusion, privilege misuse, lost assets, ransomware and more.

Cybersecurity may not be a top priority as practitioners navigate everyday challenges of rising costs, increasingly complex insurance landscape, and ever-changing regulations. But it’s in that environment that cybercrime increases as hackers advance their tactics to prey on vulnerable businesses. The reality is that cyberattacks can strike at any time^§.

Keeping a step ahead

It may be wise to evaluate and elevate cybersecurity tools and protocols now because the costs of breaches may come in many forms, including reputational damages, operational disruptions, and legal liabilities. Although owners aren’t required in many cases to announce or report breaches to authorities, of those surveyed who experienced ransomware, 14% of small practices and 11% of large practices permanently lost data after either making no attempt to pay the ransom or paying but still not recovering their stolen data^¶. The same survey found that small practices paid between $5,000 and $10,000 and large practices paid between $10,000 and $25,000 to recover data.

Regardless of intent, errors are expensive, as owners often face a stiff penalty because the Health Insurance Portability and Accountability Act of 1996 (HIPAA) applies to much of the healthcare data. No matter the size of a practice, each HIPAA violation can cost between $100 and $50,000/per patient record^Ɫ.

Getting the advice you may need

Keeping your practice, assets, and reputation safe and secure comes with preparation and in many cases the guidance of a professional. To learn more, please contact your Huntington Private Bank team to see how we can help, or find a Huntington Private Bank Office near you.